Ambitious, acquisitive car retailer Marshall Motor (MMH:AIM) is selling its leasing business for a bumper £42.5m, news that drives shares in one of our recent Great Ideas selections 12p or 7.5% higher to 172p.
Enabling Marshall Motor to move faster in growing its core motor retail operations, the deal will enable the AIM-listed concern to reduce indebtedness and takes balance sheet net assets per share up to 254p.
LEASING BLOW-OUT
The disposal of Marshall Leasing to Northridge Finance (part of Bank of Ireland) needs the regulatory nod from the Financial Conduct Authority, though Shares welcomes this development.
While the leasing arm has been part of Marshall Motor since formation in 1979 and is performing pretty well, the leasing and fleet management market is consolidating, scale is of growing importance and the business is capital intensive in nature and time consuming for management.
Unfettered by the unit, Marshall can now focus on driving organic growth in UK motor retailing, while boosting its geographic footprint through targeted acquisitions with brand partners such as Audi, BMW, Jaguar, Land Rover, Volkswagen and Mercedes-Benz.
BALANCE SHEET BOOSTER
Admittedly, shedding leasing will dilute this year’s earnings, although crucially, it significantly improves the balance sheet. Cash proceeds will initially be used to reduce leverage - net debt at the 30 June half year amounted to £101.1m - and the deal takes Marshall Motors’ net assets up to £196.7m or 254p per share.
As CEO Daksh Gupta (pictured below) explains, ‘the strategic disposal of our leasing business is an important step for Marshall Motor. It further strengthens our financial position and allows us to remain focused on driving our core retail operations. In a changing and consolidating retail landscape, we see various exciting opportunities ahead which, with the support of our brand partners, we are now even better positioned to exploit.’
N+1 Singer writes: ‘Full year forecasts for net debt of £53m (excluding the asset backed leasing debt) will move to net debt of circa £10m. The market had been looking at ‘total’ debt though including leasing, and from that perspective the disposal is transformational, reducing forecast net debt from £116m to circa £10m.'
The broker adds that ‘the improved balance sheet and financial flexibility positions Marshall well, both defensively and in terms of resource for any future growth initiatives or M&A, which the company again reiterates it is well placed for.’
We're staying positive on Marshall Motor, seeing value in a steep discount to newly-enhanced NAV and scope for a higher share price as Marshall successfully executes its growth strategy and market conditions (hopefully) prove less gloomy than feared.
